Canada Gazette, Part I, Volume 154, Number 41: Regulations Amending the Marine Liability and Information Return Regulations (Certain Fees)

October 10, 2020

Statutory authority
Marine Liability Act

Sponsoring department
Department of Transport

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issues

As part of Budget 2017, the Government of Canada began the process of modernizing its fee structure. This included the repeal of the User Fees Act and its replacement by the Service Fees Act (SFA). The SFA simplifies the process of setting and adjusting fees, thereby enhancing the ability of departments and agencies to rebalance the burden of costs between taxpayers and those who directly benefit from government services.

Currently, there are no fees for marine insurance certificates issued by Transport Canada (TC). The introduction of a user fee for these certificates in this proposal is part of TC’s cost recovery initiative, which aims to modernize existing fees, introduce new ones and simplify fee structures. Fee modernization is part of a broader transformation plan to modernize laws, regulations, rules and standards, while ensuring TC continues to uphold safety and security and to support innovation in the transportation sector.

Background

TC performs many activities that directly benefit the marine industry. This includes the issuance of certificates of insurance or other financial security (e.g. bank guarantee) to vessels operating in Canadian waters. There are currently no fees charged for the issuance of these certificates.

The issuance of these certificates is currently done as part of Canada’s commitment under three international conventions:

• (1) the International Convention on Civil Liability for Oil Pollution Damage, 1992 (CLC);
• (2) the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 (Bunkers Convention); and
• (3) the Nairobi International Convention on the Removal of Wrecks, 2007 (Wreck Removal Convention).

These conventions determine the conditions of liability in the event of an incident. They are based on the polluter pays principle by creating a strict liability regime for owners of vessels. Furthermore, these conventions require the issuance of state certificates attesting that insurance or other financial security is in place to cover a vessel owner’s liability, in accordance with the mandatory insurance provisions of the convention in question. Without this state certification, vessels cannot operate or enter and leave ports in countries that are parties to the conventions (e.g. Canada).

In Canada, the competent authority that issues these certificates is TC, based on the certificate model set out in the respective convention. A certificate is issued only after determining that the compulsory insurance requirements have been met. This includes ensuring the adequacy of the insurance or other financial security and the evidence provided by the applying vessel owner. These certificates must be renewed on an annual basis. All countries that are party to a convention reciprocally recognize certificates issued by other countries that are also party to the convention.

TC first started issuing CLC certificates in 1989 (approximately 220 certificates per year), adding the Bunkers Convention in 2010 (approximately 540 certificates per year) and the Wreck Removal Convention in 2019 (about 1 760 certificates per year).

TC’s Marine Insurance Unit receives the applications and issues Canadian certificates to Canadian-registered vessels and to any foreign-registered vessels in need of a certificate, provided they are not registered in another country that is party to the convention in question. The vast majority of foreign-registered vessels with Canadian-issued certificates are from the United States.

Failure to carry a valid certificate can result in enforcement action being taken by a Transport Canada marine safety inspector. This includes the detention of the vessel in question and the application of fines.

Currently, no fees are charged to vessel owners to obtain certificates from TC. However, both the Marine Liability Act (MLA) and the Wrecked, Abandoned or Hazardous Vessels Act (WAHVA) contain regulatory authorities to set a fee for issuing such certificates.

Canada became party to the Wreck Removal Convention on July 30, 2019, and this new requirement has significantly increased the number of certificates being issued by TC. As a result, rising costs to continue to deliver these services would not be offset by any revenue inflows.

Furthermore, Canada became party to another liability and compensation convention in 2018 that covers incidents of hazardous and noxious substances (e.g. chemicals, liquefied natural gas) which also has similar compulsory insurance and state certificate requirements. However, this convention is not yet in force internationally and thus is not included in the calculations nor in the regulatory proposal.

Objective

The objective of the proposed regulations is to partially recover the costs for providing the service of assessing and certifying the validity and adequacy of marine insurance in accordance with the requirements under Canadian law and international conventions. Currently, no fees are charged to vessel owners to obtain these certificates. The proposed regulations would charge those that benefit from these services and would therefore reduce costs to Canadian taxpayers.

Description

These proposed regulations would institute a user fee for marine insurance certificates in accordance with the Service Fees Act. A new fixed fee of $98 would be added to the Marine Liability and Information Return Regulations (SOR/2016-307) for the two certificates being issued under the MLA. A very similar but new set of regulations would be created under the WAHVA for the Wreck Removal Convention certificates.

New user fee

Fee Item	Full Cost per Unit	Current Fee	Proposed Fee
Provision of assessment and certification services related to the issuance of marine insurance certificates under the regulations	$109	$0	$98

Regulatory development

Consultation

TC conducted consultations with affected stakeholders on implementing cost recovery for marine insurance certificates.

The consultations included the following:

• mail-outs and emails through a “notice to industry” in December 2018;
• letters to current marine insurance certificate holders in February 2019;
• a notice to stakeholders promoting the “Let’s Talk Transportation” webpage (for their feedback) in February 2019;
• a notice to current certificate holders and links to the “Let’s Talk Transportation” webpage as part of regular email communications and the launching of the “Let’s Talk Transportation” page that same month; and
• presentations to the Canadian Marine Advisory Council (CMAC), a semi-annual meeting with marine sector stakeholders, and at the Canadian Board of Marine Underwriters (CBMU).

In November 2018, TC sought initial views from industry at the CMAC where a complete fee design and pricing presentation was made. Stakeholders were given an overview of the costing and fee design methodology, the policy lens to establish the pricing and the SFA requirements. Stakeholders did not express any concerns with the introduction of a fee for marine insurance services. This preliminary feedback from industry informed the development of the fee proposal, which includes detailed information in support of the proposed changes.

To support engagement and elicit meaningful stakeholder input, the fee proposal was emailed directly to several stakeholder groups and they were invited to submit comments in tandem with a “Let’s Talk Transportation” webpage that was posted in February 2019. Minimal feedback was received, with one association, one firm and one provincial Crown corporation providing input. There is general support for marine insurance and acceptance that cost recovery is necessary. Some of the feedback included wanting to see a lower per-certificate fee as well as an improvement in the service standards.

TC performed a rigorous costing analysis, determining that the estimated full cost of assessing and certifying marine insurance is $109 per application. This estimate reflects a three-year average of the cost and effort required to provide marine insurance assessment and certification services, covering fiscal years 2015–2016, 2016–2017 and 2017–2018. It was determined that a fee of $98, which is 90% of the estimated full cost, was a reasonable and justifiable amount to propose as the new fees. With regard to the service standard, TC will commit to reviewing its service standard once the full impact of the introduction of the Wreck Removal Convention certificate has been assessed. A periodic review of the service standard is expected to take place within five years of the coming into force of the regulations.

Modern treaty obligations and Indigenous engagement and consultation

The cost recovery measure seeks the recovery of funds for providing certification and services to companies that operate mainly large vessels and is not expected to disproportionately impact Indigenous groups.

Instrument choice

Instruments other than regulations, such as standards, policies, and economic instruments, were deemed inappropriate to obtain the outcomes needed. Fees for these types of certificates and the ability to enforce non-compliance can only be set using the regulatory authorities provided under the MLA and the WAHVA.

Regulatory analysis

Benefits and costs

Some TC services have been provided to individuals and industry free of charge, while fees for other services have not been updated in 20 years and do not reflect what it really costs the Department to deliver them. As a result, Canadian taxpayers have been bearing more of the costs of providing services to transportation stakeholders. The public should not bear the costs of government activities in cases where private vessel owners derive the primary benefit. The proposed regulations would shift the cost burden of the certificate program away from Canadian taxpayers toward the primary users of the program.

Those stakeholders that are directly affected by the fee proposal are typically shipping companies with multiple vessels, some are governments (provincial or municipal) and a few are private individuals.

About two thirds of the certificates issued are to Canadian-registered vessels operating domestically. The vast majority of vessels that serve Canada’s foreign trade are flagged in countries that are also parties to these international conventions, thus reducing the number of certificates that could be issued by TC. Those certificates issued to foreign-registered vessels are almost exclusively to United States-registered vessels.

The proposed regulations would cost Canadian vessel owners $1.48 million (present value, discounted at 7%, and expressed in 2018 $CAN) between 2020 and 2029, or an average annual cost of $148,000. It is expected that 2 788 certificates would be issued per year over the next 10 years. Of those, an estimated 2 147 are for Canadian-owned vessels and 641 are for foreign-owned vessels.

Given the international landscape where most other countries that issue these certificates charge fees and the fact that a $98 fee would have a minimal impact on the Canadian marine industry, the proposed regulations are an overall benefit and ensure taxpayers are not funding the issuance of certificates that benefit the industry.

Small business lens

It is expected that the majority of the affected companies are large businesses. However, in a case where a small business is affected by the proposed regulations, it is expected that the compliance cost would be low. For example, a business that has only one vessel requiring a marine insurance certificate would pay $98 per year. For businesses with vessels that may require more than one certificate but no more than three (e.g. for a large oil tanker), the cost for all three certificates would be $294.

One-for-one rule

The proposed regulations would not result in any administrative burden on industry. Businesses that would pay the new cost recovery fee are already submitting applications to obtain marine insurance certificates. There is no increase or decrease in administrative burden. As a result, the one-for-one rule does not apply to the proposed amendments.

Regulatory cooperation and alignment

Although this regulatory measure has an effect on Canada’s current policy on the implementation of three international conventions, the change would not have any impact on the application of the conventions themselves. This is solely an administrative policy change to be in line with domestic measures (Service Fees Act).

This regulatory proposal aligns with regulations in other jurisdictions that are also part of the same international agreements (e.g. United Kingdom and Australia).

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus (GBA+)

Cost recovery on an already implemented initiative is not assumed to negatively affect persons based on considerations such as gender, sex, age, language, education, geography, culture, ethnicity, income, ability, sexual orientation, and/or gender identity.

Implementation, compliance and enforcement, and service standards

The proposed regulations are expected to enter into force on April 1, 2021. Therefore, those persons who apply for a marine insurance certificate after the coming-into-force date would be required to pay the fee. TC’s Marine Insurance Unit would continue to issue the required certificates and process payment of the new application fee.

Marine safety inspectors verify compliance with the requirements for vessels to carry marine insurance certificates in accordance with the MLA and the WAHVA during statutory and compliance monitoring inspections on all vessels.

Under the MLA, a vessel that does not have a Bunkers Convention certificate or a CLC certificate must not enter or leave a port or terminal in Canadian waters or in Canada’s exclusive economic zone or arrive at or leave an offshore terminal in Canadian waters or in Canada’s exclusive economic zone. The same is true for a vessel that does not have a Wreck Removal Convention certificate under the WAHVA. Vessels that operate without the required certificates are subject to vessel detention.

The MLA provides that designated officers may, for the purpose of verifying compliance or preventing non-compliance with the MLA, board a vessel at any reasonable time. To that end, the officer may direct the vessel to stop and to proceed to a place specified by them. The owner, the master of the vessel and any other person on board shall give a designated officer all reasonable assistance to enable the officer to carry out their duties and functions.

The MLA also provides authority for a designated officer to make a detention order in respect of a vessel if the officer believes on reasonable ground that an offence has been committed in respect of the absence of a Bunkers or CLC certificate. The MLA provides the authority to, on summary conviction, issue a fine of up $250,000. Movement of a vessel that is subject to a detention order under the MLA could result in an administrative monetary penalty of up to $50,000 for an individual and $250,000 for a corporation.

The WAHVA provides authority for enforcement officers to, for the purpose of verifying compliance or preventing non-compliance, enter a place, including a vessel or wreck. Failure to provide the proper certificate would result in vessel detention and a fine of up to $100,000 upon summary conviction. Movement of a vessel that is detained would be subject to an administrative monetary penalty of up to $5,000 for an individual and $25,000 for a corporation.

Contact

Caitlin O’Boyle
Manager/Senior Policy Advisor
International Marine Policy
Marine Policy
Transport Canada
Place de Ville, Tower C
330 Sparks Street
Ottawa, Ontario
K1A 0N5
Telephone: 613‑993‑4895
Email: caitlin.oboyle@tc.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to section 90 ^{footnote a} of the Marine Liability Act ^{footnote b}, proposes to make the annexed Regulations Amending the Marine Liability and Information Return Regulations (Certain Fees).

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Caitlin O’Boyle, Manager/Senior Policy Advisor, International Marine Policy, Marine Policy, Department of Transport, Place de Ville, Tower C, 330 Sparks Street, Ottawa, Ontario K1A 0N5 (tel.: 613‑993‑4895, email: caitlin.oboyle@tc.gc.ca).

Ottawa, October 5, 2020

Julie Adair
Assistant Clerk of the Privy Council

Regulations Amending the Marine Liability and Information Return Regulations (Certain Fees)

Amendment

1 The heading before section 5 and sections 5 and 6 of the Marine Liability and Information Return Regulations ^{footnote 1} are replaced by the following:

PART 4

Fees for Certificates

Civil Liability Convention certificate

5 A fee of $98 is payable to the Minister for the issuance of a certificate under subsection 56(1) of the Act.

Bunkers Convention certificate

6 A fee of $98 is payable to the Minister for the issuance of a certificate under subsection 74(1) of the Act.

Payment

7 A fee imposed under this Part is payable on application for the certificate.

Coming into Force

2 These Regulations come into force on April 1, 2021.